This is an article from the Sunday New York Times about portfolio construction and diversification. These types of articles are the most interesting to me because of my belief that stock selection is less important that asset allocation, country weighting, sector selection and all of the other top down things that come before picking stocks.
If you are a do-it-yourselfer I would encourage you to seek out articles like this one. This one article is by no means a panacea but there is some process there, and I can't write enough times that every investor should continue to try to learn. When I write take a little from here and a little from there to create your own process, this type of article is one of the theres I am talking about.
The author cites a study from Ibbotson's about the following asset allocation;
55% equities
30% bonds
10% commodities
5% cash
According to the article, this portfolio had an average annual return of 7% compared to 3.6% for a stock only portfolio. Over a ten year period the all equity portfolio won 12.1% to 11% and over 15 years equities won 10.9% to 10%.
The returns are not radically different for the longer time periods but slightly so. I don't know if the returns of either portfolio include dividends or not but keep in mind if the SPX is yielding 1.8% these days it would not take too much work to add an extra 50 basis points or so in dividend yield. For an investor willing to apply themselves maybe 100 basis points in yield can be added.
If those that say we will have flat-ish returns in the equity market for several years to come are right it will be very important to have access to other asset classes and to have some extra yield in the equity portion of your portfolio.
I may not get a chance to post again today. My sister in law teaches 2nd grade down in Phoenix and my wife and I are doing a thing for her students about wildland fire fighting. I need to find some time to get some work done at the office too. It could be a long day because my wife hates listening to CNBC on Sirius. Oh well.
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6 comments:
What is it with wive hating of CNBC on tv or otherwise. Is this a unversal thing? Could be....
I always enjoy your blog and have done so since discovering it thanks to the Businessweek article of a few months back I should mention. 55% held in equities seems pretty low. I know I have seen perhaps in this site(can't remember!) that there is a mathematical calculcation based on your age with a multiplier of 1.3 to find the right amount of stocks to hold but 55% still seems extremely low to me. Also, Roger could you speak a bit more on the Austrian stock market ans their strengths in recent months? Anyt insight you would have would be greatly appreciated. Thanks!
What is it with wives hating CNBC on tv or otherwise? Is this a unversal thing? Could be....
I always enjoy your blog and have done so since discovering it thanks to the Businessweek article of a few months back I should mention. 55% held in equities seems pretty low. I know I have seen perhaps in this site(can't remember!) that there is a mathematical calculcation based on your age with a multiplier of 1.3 to find the right amount of stocks to hold but 55% still seems extremely low to me. Also, Roger could you speak a bit more on the Austrian stock market ans their strengths in recent months? Anyt insight you would have would be greatly appreciated. Thanks!
The idea sounds convincing - but how doe you buy " commodities " ?
What you buy is futures for specific commodities, eg. soy beans, right ? But how do you get a whole basket of diversified commodities in one deal ? Are ther fonds, certificates ? How doe you gain access ? Without this information the whole article seems quite irrelevant. Sorry
Juergen Ziefer
Juergen,
There are plenty of firms that offered managed commopdity accounts. There are funds that own commodities as well. This would not be difficult to find.
Hi, Roger,
the commodity-account with a firm sounds a bit more risky than futures in itself... whom do you trust ??
the fonds I found on various spezialised websites hold shares in companies which are engaged in some kind of commodities, mostly heavy in oil, some in mining. That´s certainly not a commodity "basket"!
Now, if there is justs one fund, which is mannaged by any internationally renowned Fund-Management-Company and which manages commodities in general, I´d be most interested to know. Sound rather like a business idea to me, but I´m over the age to bother doing something like that.
Any useful information out there ?
Thanks,
Jürgen
a managed commodity account is not tht risky. As Jim rogers says sugar can't go to zero. a firm may or may not be shaky but I can't recall any commodity firms going under AND losing all thier clients' money.
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